Along with Clayton Christensen's The Innovator's Dilemma, these two book are really critical to understanding how the tech industry works.

"First the new technology is not taken seriously at all. Then it's taken way too seriously way too quickly - everybody gets too excited. Then there's a gigantic catastrophe; and only then stuff actually starts happening.” (@pmarca speaking at the GS Conference)

What all the bubble talk in the last 10 years has been about:

The interviewer pointed out Marc's earlier views about MBAs flocking into the tech sector being a sign of a bubble. So, could this perhaps be a sign of a bubble?

Marc's response: "Things are heating up."

Historically, there has been a direct correlation between P/E multiples and MBAs going into the tech industry, but Marc thinks that something different is actually happening. The way companies are being built changed in the last ten years and MBAs - and business people in general - turn out to be very central to it, in a way that is different than the past.

Marc groups the story of how the great technology companies have been built into three distinct phases:

1st Phase (1940s - 1980s)

Building a technology company before the 1980s was an “unbelievably exceptional thing to do.” It was incredibly difficult and only the really extreme characters were able to do it.

David Packard (President and CEO of HP): "When David Packard was running HP he had two nicknames: "Pappy" (the paternalistic type) and his other nickname was "The Mean One" - and similarly to Watson - he would just tear people apart."

Ross Perot (Founder of EDS) is Marc’s favorite example. Ross Perot built the first great outsourcing company (EDS was one of the big tech successes of the 60s). He was fantastic as a business builder, but when he came in contact with the American public… People were surprised (paraphrasing). Perot is perhaps best known for being a presidential candidate in 1992 and 1996.

VCs from that era had to be extreme characters as well...

2nd Phase (1980s - 1990s)

In the 80s and 90s investors and tech entrepreneurs professionalized. VCs were business people/investors first, but did not have experience running their own company (even the great ones like John Doerr, Mike Moritz, Jim Breyer). Since everybody knew that founders could not possibly run their company... The default model was to “promote” or fire the founder to the chairman or CTO role and get a professional CEO in as fast as possible.

Technology companies were like shells - not too interested in the technology.

Companies were racing to go public as fast as possible.

Catchphrases like “forget details just do deals" were common.

At the height of the bubble the products being built were simply not very good.

Engineers hated working for those companies because they were mercenary and completely sales-driven.

3rd Phase (2004 - present)

The way companies are being built changed in the last ten years - the pendulum has swung all the way in the other direction! Design, product, and most importantly, the technical founder/CEO is now central to the modern day technology company. Mark Zuckerberg the apotheosis of that.

Marc believes that since a lot of the entrepreneurs today are engineers and not business people, the actual art of building a business may have been lost. Particularly the art of sales and marketing. Founders today are very technical, very product centric, and they are building great technology; but one of the big issues they've seen at Andreessen Horowitz is that many of them just don’t have a clue about sales & marketing, "it’s almost like they have an aversion to learning about it." The challenge for these companies is knowing how to integrate top-end business and operational thinking to their products. Unlike the Dot-Com Bubble, the technology today is incredible advanced and the products are fantastic, so there's a big opportunity over the next five years to fit the tech/business pieces together.

MBAs: Two Models That Work

The Mark Zuckerberg/Sheryl Sandberg Model

Pairing a very high-powered business person with deep capabilities in sales, marketing, and operations, who is able to partner as a No. 2 (president or COO) with a technical founder/CEO when you have somebody like a Mark Zuckerberg. This past decade a lot of the top-end business leaders in Silicon Valley have figured this out, and like Sheryl Sandberg, have come in as No. 2, where before they would have taken the CEO role. The most recent example is Dennis Woodside (former Google exec/CEO of Motorola Mobility) becoming Drew Houston’s No. 2 as COO of Dropbox. Everybody needs a Sheryl...

I work with Sheryl at Facebook and tease her all the time that she's lost control over her own name, it's now become a proper noun!

The Bill Campbell/Scott Cook Model (Dick Costolo Model)

If the company doesn’t have a founder that is capable of being the CEO or who wants to be the CEO then it can work to bring in a "professional CEO” who really understands the role of founders and the importance of product/technology strategies. For example, Bill Campbell may not be a technologist, but he's an outstanding operator of businesses and has profoundly deep respect for founders. In the 90s, professional CEOs tended to view founders as inexperienced kids. Bill Campbell's partnership with Scott Cook worked so well at Intuit because it was just that: apartnership.

"For MBAs going into the tech industry, the key question is what kind of partnership are you going to have with the technical visionary, who will often be the technical founder. If you can crack that code there is an enormous opportunity to have 1+1=3."

A _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16 Z

"How would you build the venture capital firm optimized for a technical founder who wants to be a CEO?"

1. OperatingExperience

General partners at A16Z must have operating experience running a company.

"You get somebody on the board who has been through the war and really understands what things are like."

Technical founders have typically never run a company before. Some have never managed people before. At times they have never even held a job before! So when they become CEO of their own company... It shines a very bright light on the background and caliber of the GP that joins their board.

2. Professional CEO Network

Seasoned executives in Silicon Valley have an enormous network at their disposal that younger founders do not and cannot be expected to have.

"Lets reconstruct the network where we can take technical founders and inject them straight into the network and give them the superpowers of a network that is comparable to what a John Chambers might have."

Best Pitch Meetings

Most exciting pitch meetings are when the really bright founders that have done a tremendous amount of work and completely understand the domain walk them through their idea maze.

The best founders have usually been working on their idea for years and can articulate how they went from the initial crazy starting point to a concept that can actually work in the world.

Venture capital theory says that VCs should back "coachable entrepreneurs.”

The entrepreneurs with the really radical ideas are generally not only not coachable, but they react with hostility to being coached!

Andreessen Horowitz partners often suggest to the entrepreneur who is pitching a new way for doing their startup - as a test - that agreeable entrepreneurs fail. The best founders have been thinking about their idea for so long and have such a clear vision for what they want to create that they usually react with hostility towards the VC for even thinking that they can offer them a suggestion after only being exposed to the concept for a few minutes. They way entrepreneurs react to the feedback can be very revealing when trying to find out if they have the right combination of genius and courage.

"Part of it is the words, but in particular it's the look on their face. We love that look. It's like caviar."

The Look:

"We Love Those!"

What matters to you most today and why?

"We are really deep believers in the power of technology. We think that the technology industry has made the world a radically better place in the last 70 years and we think it will make the world a radically better place yet in the next 30 years. It’s just starting."

"I feel like I have spent my entire career, and previous generations of entrepreneurs have spent their careers, getting to the point where we can do the things that we can do. It's an amazing time in terms of what we can do."

After 70 years in the computer industry we’re just now reaching the point where we can apply technology to a lot of fundamental problems and opportunities around the world.

The smartphone is the first computer that can get to everybody on the planet (mostly lower-end devices running Android).

The limiting factor is: internet access.

Internet.org is a partnership between Facebook, Samsung, Ericsson, Nokia, and others to provide users with free basic text based services like messaging, Wikipedia - and naturally - Facebook. The goal is to connect everybody on the planet by reducing the cost barrier for internet access. This requires new business models that enable low-cost access, and new ways to optimize/reduce bandwidth consumption must also be developed. Peter Gregory's bidding war with "Google" is making a whole lot of sense now...

Meanwhile... Hooli is taking a slightly different approach. Project Loon aims to extend internet access to remote areas across the developing world by sending large balloons around the globe - in 22 days - as recently announced on Hooli+.

Market size increase is a function of the developing world connecting to the internet.

If you extrapolate from the number of smartphones globally, the total addressable market for news by 2020 is around 5 billion people worldwide.

Conclusion

A Venture Capitalist may contemplate spending more time tweeting and less time blogging, but in the digital age: tweets last a week; blogs last a lifetime (or as long as WordPress is around). Given the absence of a properly functioning “Bing for Tweets” (Google is a bit preoccupied) some permanence must be added to Marc Andreessen’s insights. We hope that this was a good start.

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